The very-centralized crypto exchange Coinbase has proposed an investment line with MakerDAO, the organization behind the largest decentralized stablecoin.Ā
It appears adversity truly does make strange bedfellows.
The proposal would move a third of the Circle stablecoin backing Makerās dai stablecoin, an estimated $1.6 billion, toĀ Coinbase PrimeĀ in exchange for 1.5% yield ā or an estimated $24 million of MakerDAO revenue. The proposal comes as Coinbase stock has plummeted and Maker reckons with the regulatory risk created by its USDC holdings.
Maker making the most of its USDC
MakerDAO is theĀ largestĀ single USDC holder.Ā
The stablecoinĀ makes upĀ 35% of daiās collateral, roughly $4.8 billion. The dollar-backed stablecoin allows Maker to invest in non-crypto assets, as with its recent $100 million credit lineĀ inkedĀ with Huntingdon Valley Bank.Ā
Makerās leadership has beenĀ callingĀ for the DAO to shift away from USDC since the tokenās developer teamĀ blacklistedĀ Ethereum addresses in response to US Tornado Cash sanctions. But the Maker community was sour on Circle ā even before the Treasury got involved.
āIn the last couple of years, Maker has been actively contemplating how to get the USDC off its balance sheet,ā Greg Di Prisco, Makerās former head of business development, told Blockworks. āMaker holds USDC and makes nothing.ā
The Coinbase proposal is being pitched as a way to get a return on the DAOās dead weight USDC holdings. And while Coinbase does not follow Makerās decentralized principles, the DAOās leadership sees the centralized exchange as a pragmatic business partner.
āIn an ideal world I would say we are completely crypto collateral backed because we get maximum decentralization. This is impossible in my view though,ā Sam MacPherson, an engineer at Maker, told Blockworks. āThereās just not enough demand for loans against ETH [and other cryptocurrencies].ā
Even Rune Christensen, MakerDAOās co-founder who has led the charge calling for Dai to move its backing to Ethereum, voiced support for the initiative,Ā writingĀ under Coinbaseās forum post, āfrom a regulatory/legal/seizure risk perspective, this proposal changes nothing ā itās no different than holding USDC.ā
Coinbase keeps a customer
The proposal would keep Maker as a customer for Coinbase, which co-founded USDC in 2018. The company earns interest from Circle on its USDC holdings, which totaled $360 million in June, per CoinbaseāsĀ SEC filings.
Coinbase is making its pitch weeks after Christensen threatened to āyoloā Makerās USDC holdings into ether following the Tornado Cash sanctions.
āCoinbase is now saying, āHey, so, you donāt leave USDC, weāll give you 1.6% to stay,āā Di Prisco said.
Coinbase has endured a rough year amid the crypto market downturn. The companyās revenue and active usersĀ shrunkĀ between the first and second quarters, and Coinbaseās stock price has fallen nearly 75% since the start of 2022.Ā
The exchange is also the subject of multipleĀ lawsuitsĀ regarding its listing of digital assets the SEC has recently deemed securities.
Coinbase will hope for a stroke of positive news when its proposal is put to a vote on Makerās governance portal.
Coinbase declined to comment.
